Life and Death Planning for Retirement Benefits

Chapter 4: Inherited Benefits: Advising Executors and Beneficiaries

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A. But if the decedent actually did fail to take RMDs during his life, to what extent does that failure become the executor’s problem? The following discussion assumes the IRS had made no demand, prior to the participant’s death, for payment of excise taxes under § 4974 . If the IRS had made such a demand, then the estate and/or the beneficiaries could be subject to transferee liability for the decedent’s excise taxes. Transferee liability is beyond the scope of this book. RMD for the year of death. If a participant died on or after his required beginning date (RBD), then a minimum distribution was required to be made during the year of his death. If he died before having taken the full required amount, the responsibility to take whatever portion of the year-of-death RMD the participant did not take prior to his death passes to the beneficiary of the account. See ¶ 1.5.04 (A). Similarly, if a beneficiary dies in a year in which the beneficiary is required to take an RMD from an inherited plan or IRA, the responsibility to take the balance of the RMD for that year, and subsequent years, passes to the successor beneficiary of the account. See ¶ 1.5.13 . Thus, the executor of the participant’s (or beneficiary’s) estate does not need to be concerned with the RMD for the year of the participant’s (or beneficiary’s) death unless the estate is the beneficiary (or successor beneficiary) of the account. B. Missed RMDs for years prior to year of death. Since it was the participant’s personal responsibility to take his RMDs for any applicable years prior to his death, and the participant who owed the penalty under § 4974 for failure to take any such distributions, it would not appear that the beneficiaries of the retirement plan have any liability for penalties the deceased participant owed for RMDs that the decedent didn’t take. C. Executor’s responsibility for decedent’s excise tax. An executor has personal liability (up to the value of the estate he is administering) for his decedent’s federal estate, income, and gift taxes. § 2204(a) , § 6905(a) . The penalty for failure to take an RMD is an excise tax imposed by § 4974 which is part of Subtitle D. There does not seem to be an equivalent imposition of personal liability on the executor for the decedent’s excise taxes. The executor does have the responsibility to file the decedent’s income tax return ( § 6012(b) ), and the income tax return has a line (line 58 on the 2009 Form 1040) for the entry of “Additional tax on IRAs, other qualified plans, etc. (attach Form 5329 if necessary).” Form 5329 does not mention executors in its instructions. However, the IRS apparently thinks the executor is responsible for this return since the IRS includes “excise taxes” in Form 4810, the form the executor uses to request prompt assessment of “any tax” “for which return [sic] is required in the case of a decedent.” § 6501(d) . All this suggests that the executor must try to determine whether the decedent took his RMDs for any year for which the executor has to file Form 1040 on behalf of the decedent (excluding the year of death itself, unless the estate is the beneficiary of the plan; see “A”). If the participant died after having filed his own returns for all years prior to the year of death, then the executor is “off the hook.” The only year for which the executor has to file a Form 1040 for the participant would be the year of death, and the RMD penalty is not involved on that return (see “A”). D. Executor seeking waiver of decedent’s penalty . If the executor determines that the return he files on the decedent’s behalf should report the failure to take the RMD, the executor